The SBA Does Not Loan Money | Peter Mehit

The SBA Does Not Loan Money

 Q. Should I get a loan from the SBA?

A. You can’t get a loan from the SBA, but you can get a SBA loan guarantee.

Come again?

Well, first off, the SBA does not loan money, so you can’t get a loan from the SBA.  Only banks loan money.  The SBA writes guarantees to limit the losses a bank will experience if your loan goes bad.  This is important to know, because it means you will have to qualify under the bank’s rules.

These can be very different from the SBA’s.  For example, it is not a requirement for you to collateralize the full loan amount to get an SBA guarantee.  Under SBA rules if you run out of assets, but have pledged what you have available, you can be approved.  Right now, we know of no bank that will make a loan without collateral equal to our greater than the amount you’re borrowing.

Each bank’s rules are slightly different, with the large banks having the most restrictive and the local and regional banks being the most liberal.

Q. What is the benefit of a SBA loan guarantee?

A. A SBA guarantee gives the bank the opportunity to fund a loan that doesn’t meet their commercial requirements. The SBA guarantees the bank will receive their funds even if the borrower, you, defaults on the loan.  The guarantees range from 50 to 85% of the loan amount.

 

Q. What can I use the money for?

A. The SBA offers several loan guarantee programs but the most common are:

7A for working capital – maximum loan $5MM with a loan term up to 7 years

504 for acquiring real estate or equipment for your business – maximum loan $5MM with a term of up to 20 years

Microloans, which are small short-term loans of $50,000 or less

NOTE: These programs are continually being updated in terms of loan amounts, interest rates, fees and the amount of the loan the SBA will guarantee, so to get the latest skinny,use the following link:  http://www.sba.gov/financialassistance/borrowers/index.html

Q. What else does SBA offer for the small business owner?

A. In addition to providing guarantees for loans made by private or public institutions, SBA funds counseling and training for the benefit of small business owners through resource partners.  All counseling is free and the training is either free or low-cost.

SCORE – Service Core Of Retired Executives

SBDC – Small Business Development Centers

WBC – Women’s Business Centers

Click on the link below to get more information on these resource partners and to find one in your area.

http://www.sba.gov/services/counseling/index.html

Caveat:You may find that much of the counseling is provided by people who have never started or owned a small business.  They may have experience in corporate America, training or education, but that is very different from running your own small business.  That doesn’t mean you can’t get good advice and meaningful help, just be sure to find out what their background is and evaluate the suggestions they make in light of that experience.  People who have owned a business have an understanding that cannot, in our opinion, be approximated by those who have worked for others their entire careers.  As one our friends says, “Until you’ve sweated out making a payroll, you haven’t been an owner.”